India’s insurance sector struggles to match GDP growth

A recent McKinsey report highlights a troubling divergence: life insurers are seeing new business premiums grow at a 12–16% compound annual rate, yet value-of-new-business margins have dropped by three to four percentage points. The core issue lies in efficiency; operating expenses are climbing at a 20% annual clip, significantly faster than the 14% growth in new business premiums. This disconnect suggests that current distribution models are failing to convert market expansion into sustainable profit.

The general insurance sector faces its own structural headwinds. Productivity among top private multiline insurers has declined by 2.5% annually, hampered by manual underwriting and fragmented data. Unlike the banking or e-commerce sectors, which have successfully digitized to meet rising consumer expectations, insurance remains tethered to legacy processes. Consequently, the number of in-force individual life policies has remained flat at roughly 330 million since 2017. As India’s nominal GDP tracks toward USD 7.3 trillion by 2030, the insurance industry stands out as the sole financial sector that has largely missed out on the broader financial-inclusion wave.